Employment and pay

Labour supply and earned income underpin the standard of living of individuals and their families. The choices to enter work and how much to work cannot be fully understood in a static framework by looking at each period of life on its own. Instead, they are closely linked to early education choices and to further investments in skills during the working career. Over the course of life, the interactions between labour supply and these investments determine earnings, their progression and, ultimately, economic wellbeing.

Seminal work at the IFS has set the research agenda on labour supply, skills and wages, and their interplay with the tax and benefit system. This included groundbreaking work on modelling labour supply, measuring labour supply responses to changes in take-home pay, explaining retirement choices, characterising the distribution of wages and understanding wage progression. Much of this research was supported by TaxBen, the in-house detailed tax microsimulator that we have built and maintained since the early 1990s. TaxBen also supports our policy commentary on employment and pay related issues.

Our current research builds on the methods and insights of these early contributions. It aims to better explain the dynamic aspects of labour supply and earnings over the course of life, by relating them to the formation of skills, the family and the process of family formation, the uncertainties faced by individuals and their families, the persistent economic inequalities and the incentives created by the tax and benefit system. Our research is also seeking to analyse the determinants of recent trends in labour market productivity, which is key to understand the drop in productivity after the Great Recession after a long period of stable growth.